Chapter 2 – Appendix
Exhibit 2A.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following are the annual returns for both Alpine Corporation and Tauber Industries:
Alpine’s
Tauber’s
Year
Rate of Return
Rate of Return
1995
5
9
1996
9
16
1997
11
−16
1998
−10
12
1999
12
9
1. Refer to Exhibit 2A.1. Calculate the covariance.
a.
−32.20
b.
−23.32
c.
1.00
d.
23.32
e.
32.20
2. Refer to Exhibit 2A.1. Calculate the coefficient of correlation.
a.
−0.456
b.
−0.354
c.
0.000
d.
0.456
e.
3.538
3. What is the correlation coefficient for two assets with a covariance of .0032, if asset 1 has a standard deviation of 12
percent and asset 2 has a standard deviation of 9 percent?
a.
0.2963
b.
0.3456
c.
0.8721
d.
1.5980